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| Risk, whether large or small, is a part of the strategic investment process. Creating a successful investment portfolio begins with a careful calculation of how much risk you are willing to expose yourself to as compared to the rate of return on your investment. These are some of the risk factors you should consider as you plan your investment strategy. • Interest Rate Risk • Inflation Risk • Economic Risk • Market Risk • Specific Risk Interest Rate Risk A change in interest rates can have a dramatic impact on your investment portfolio, especially bonds and other fixed-income investments. While a lowered interest rate makes your bond investment look pretty good, a rise in interest rates means that your bonds are no longer keeping pace with the market. There is also a risk that the insurer will be unable to make principal or interest payments. Fixed income investing entails credit and interest rate risk. When interest rates rise, bond prices generally fall. Therefore, if not held to maturity, they may be worth more or less than their initial cost. Inflation Risk Inflation can not only reduce your purchasing power, it can lower the rate of return from your investments. One useful solution is to move a portion of your savings and investments into investment vehicles whose objective is to outpace inflation. Economic Risk The earnings capabilities of most companies are tied directly to the economy. If the economy takes a downturn, your investment could be threatened as well, particularly if it's in large industrial firms which take longer to make adjustments in their operation. Market Risk The stock market fluctuates up and down every day it trades. While the ups and downs of the market affect almost every type of investment-stocks, bonds and real estate, to name a few-long-term investments have historically been the best way to minimize your risk over time. Past performance is no guarantee of future results. Specific Risk From time to time there are specific events in the marketplace which may significantly affect the operation and earning potential of specific companies or specific industries. Because these events cannot be planned for, diversification of your investments is generally the best way to offset this risk. Diversification does not ensure a profit or guarantee against a loss. |
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